China's retail sales continue to pull back, but KKR sees its investment in Novo as a long-term bet, allowing the retailer to triple its stores in China and lock in lower rents now through 10-year contracts, a person familiar with the matter told Reuters.

KKR gave no further details of the investment in a statement, but the source said it would buy about 40 percent of the company and gain two seats on the five-member board. The source declined to be named as many details of the deal were private.

The investment gives KKR new shares and the existing investors are locked in until the fund exits, the source said.

"We see enormous long-term potential in the Chinese fashion retail industry, driven by rising domestic consumption and an increasing demand for the latest fashion trends," said David Liu, member of KKR and CEO of KKR Greater China.

KKR, which invested in Novo through its dedicated $1.1 billion China fund, has several other investments in Asia's busiest private equity market.

Novo, founded in 2004 by Chairman and CEO Alan Fang, a member of one of Hong Kong's most prominent textile families, rents store space of around 5,000 square meters in prime shopping malls, then sublets the space to up-and-coming designers who build their profile under the Novo brand.

The company has 11 operational stores and plans to expand that to around 30 in two years using the KKR investment, in provincial capitals, particularly along China's coast.

KKR will potentially exit through an IPO in Hong Kong or an A-share listing in China in around three years, the source said.

Like many global private equity funds, KKR is heavily focused on the consumer retail theme in China, and investment opportunities created by rising consumption among the urban middle class.

China's annual economic growth cooled to 7.6 percent in the April-June period, the slackest in more than three years, confirming a downtrend that leaves full-year growth on course for its softest showing since 1999.

Retail sales growth in China continues to ease this year, with a gain of 13.1 percent in July from a year ago after logging a 17.2 percent annual growth pace in July last year.

The world's No.2 sporting goods maker Adidas said that a summer of sporting events including the Olympics was boosting demand, helping it to avoid the worst of a slowdown in sales growth in China and Europe.